Malaysian palm oil production likely to see modest 0.5% growth in 2025-26

BMI’s outlook expects Malaysia’s palm oil sector to continue grappling with an acute labour shortage in the short- to medium- term
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Favourable climatic conditions are likely to lead to a modest 0.5 per cent growth in Malaysian palm oil production in the 2025-26 season (October to September), despite an expected decline of 1.6 per cent in the 2024-25 season.

BMI (a Fitch Solutions Company), which released an outlook for Malaysia’s palm oil production, said the output is projected to reach 19.5 million tonnes (mt) in 2025-26 from 19.4 mt in 2024-25. Major palm oil producing states in Malaysia, including Sarawak, Sabah, Pahang, Johor and Perak are anticipated to experience largely normal weather conditions, signalling minimal weather-related disruptions to the upcoming harvest season, it said.

The latest report from Jabatan Meteorologi Malaysia has projected normal to slightly below-normal rainfall during July to September 2025, with a return to normal rainfall and above-normal rainfall with the beginning of the Northeast Monsoon between October to December 2025, it said.

Terming the projected Malaysian production increase as negligible, BV Mehta, Executive Director of Solvent Extractors’ Association of India, told businessline that India gets 60 per cent of its palm oil requirements from Indonesia and 40 per cent from Malaysia.

World produces about 260 million tonnes (mt) of various edible oils. Of this, palm oil is 80 mt. Malaysia produces around 20 mt of this 80 mt. So, it is around 8-9 per cent of the total world edible oil production, he said.

India gets palm oil from Indonesia, Malaysia and Thailand. “Production volatility in Malaysia does not make any difference to us, but price does make a difference to us,” he added.

Labour shortage

BMI’s outlook expects Malaysia’s palm oil sector to continue grappling with an acute labour shortage in the short- to medium- term, primarily due to its heavy reliance on foreign workers who make up approximately 80 per cent of the workforce.

“Stringent regulations to address the exploitation of foreign workers have limited the inflow of new labourers, while low wages and the physically demanding nature of the job deter local participation. Therefore, many palm oil estates have been unable to fully harvest available crops, directly impacting yields and lowering overall production,” it said, adding, continued structural labour issues will cap the domestic output growth over the coming years.

Meagre replanting

Giving the figures of Malaysian Palm Oil Council (MPOC) on replanting delays, it said merely 2 per cent of Malaysia’s total planted area for palm oil was replanted in 2024, significantly below the country’s annual target of 4-5 per cent.

Persistently high palm oil prices since 2021 have led farmers to prioritise short-term gains from lower-yielding ageing trees over longer-term replanting. “While this trend is likely to reverse slightly in the short term as palm oil prices ease in 2025-26, we expect it to persist over the longer term as we anticipate prices to remain elevated and policy support to remain inadequate over our forecast horizon,” the BMI outlook said.

Policies revamp

To improve domestic production, Malaysia increased the windfall profit levy in Peninsular Malaysia, Sabah and Sarawak in November, and revised the export duty rates for crude palm oil.

“While these measures were designed to improve profitability for producers, boost producer morale and support domestic production over the short to medium term, we believe that more robust and targeted incentives will be necessary to encourage replanting and drive sustainable production growth over the coming harvests and into the long term,” BMI outlook said.

Sustainability

Highlighting Malaysia’s progress in sustainability compliance, it said more than 80 per cent of Malaysian production is certified for export in 2024. By proactively advancing its sustainability efforts, Malaysia can be positioned as a global leader in sustainable palm oil in the short to medium term, it said.

In 2023, the EU introduced the Deforestation Regulation (EUDR), mandating that palm oil, along with other commodities, must not be linked to deforestation to enter the EU market. In response, Malaysia strengthened its monitoring and traceability standards through the Malaysia Sustainable Palm Oil (MSPO) certification.

BMI outlook said Malaysia has reinforced its reputation as a reliable exporter, especially after Indonesia’s 2022 export ban that disrupted global supply.

“With a growing global demand for reliable and sustainably produced commodities amid a challenging global environment, Malaysia’s demonstrated efforts in both areas could be a competitive edge in the global palm oil market in the short to medium term,” it said.

Published on July 16, 2025